We explore the pricing of variance risk by decomposing stocks' total variance into systematicand idiosyncratic return variances. While systematic variance risk exhibits a negative priceof risk, common shocks to the variances of idiosyncratic returns carry a large positive riskpremium. This...

This paper examines the impact of capital gains taxation on firms’ investment and financing decisions. We develop a real options model in which the timing of investment, the decision to default, and the firm’s capital structure are endogenouslyand jointly determined. Our analysis shows that...

Municipal bonds trade in opaque, decentralized broker-dealer markets in which price information is costly to gather. Whether dealers in such a market operate competitively is an empirical issue, but a difficult one to study. Data in such markets is generally not centrally recorded. We analyze a...

This paper studies the corporate policy distortions caused by realization-based capital gains taxation at the personal level in a dynamic trade-off theory model. The lock-in effect of embedded capital gains creates severe conflicts of interest between incumbent and new investors. The firms...